The article in the url below by Mallen Baker (Foreword, pxiii) argues that, while firms benefit from striving to meet the needs and demands of their stakeholders, in general, and their customers, in particular, this relationship is weaker for those firms that profit by selling products that their consumers do not fully understand—e.g., the financial and banking industries (Issues: Finance, p175; Investing, p180):
“If someone wants a tin of beans from a supermarket, they can immediately see whether that retailer has the product actually in stock, and they can pretty easily compare the price of that tin of beans with identical products being sold elsewhere. But, if you could fleece the customer and knowingly sell products that don't wholly meet their needs, but are immensely profitable, would you do it?”
Baker’s accusation is that the underlying logic of the financial sector is confusion, combined with a fundamental legitimacy (i.e., people know that it is important to save and invest money):
“Many banks in different countries will offer a basic deposit account to put your money into which is free if you stay in credit. They will also provide a number of outlets for you to withdraw cash for free as well – because when they tried to charge for this they found the customer certainly had a voice on the issue. Beyond that, the logic of the industry rewards complexity.”
The example Baker cites indicates the significant incentives (and absence of any significant disincentives) for banks and other financial organizations to preserve the status quo:
“… First National Bank of Chicago which broke all the accepted rules for building customer loyalty when it decided to charge $3 to all customers who insisted on going into branches to carry out transactions rather than doing it remotely. The media carried a flood of critical stories, and competitors jumped in with ads pointing out that they welcomed customers at their branches. In fact, the bank lost a percentage of its customers, but its profits went up by 28 per cent. Why? There was indeed a big move to cheaper electronic transactions, and the customers they lost were generally the unprofitable ones they were only to happy to gift to their competitors. So what about the right of those customers to get a decent service? What about the social role that banking provides and their public duty? Aren't banks often viewed almost as agents of the state, and isn't part of the contract to provide such things? Sure – but that's different to saying that providing such a service has a business case behind it based on profitability.”
Take care
Dave
Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther
Financial services: Will banks ever treat customers fairly?
Banks that profit from public confusion have few incentives to be honest with customers
Mallen Baker
April 1, 2008
http://www.ethicalcorp.com/content.asp?ContentID=5807
